What is an IPO and How to Participate in It — Part 1

Investing in Initial Public Offerings (IPOs) is one of the most discussed ways to earn on the stock market. broker.tj clients are presented with unique opportunities to participate in IPOs not only on global platforms but also in the dynamically developing markets of Central Asia.

In this material, we will analyze what an IPO is, why it is beneficial, and how to make the first steps with your broker.

What is an IPO in simple terms?

An IPO (Initial Public Offering) is the first public listing of a company's shares on a stock exchange.

When a company becomes "public," it means that any individual (private investor) can purchase its share (stock) and become a co-owner of the business. Before this point, the company belonged to a narrow circle of people: founders, the state, or major funds.

Example: The company is actively growing and needs money for building new factories. Instead of taking a loan from a bank, it issues shares and sells them to investors in the stock market.

How does an IPO occur?

The IPO process is a complex procedure that usually includes several stages:

1. Preparation: A company wishing to go public hires investment banks (underwriters) that help it assess value, prepare necessary documents (prospectus), and get regulatory approval.

2. Marketing (Road Show): Company representatives and underwriters meet with large institutional investors (funds, banks), presenting them with the company and offering to buy shares. At this stage, preliminary demand is formed, and the price range is determined.

3. Book Building: Investors submit requests for shares purchase, indicating the desired quantity and price. Based on these requests, underwriters determine the final offering price and allocate shares.

4. Placement: Shares begin to be traded on the stock exchange. At this moment, private investors who submitted requests through brokers receive their shares.

How to buy shares during an IPO through broker.tj?

Participating in an IPO through a broker is the main way for a private investor to access initial offerings. Here's how it works with broker.tj:

1. Opening a brokerage account: If you do not yet have an account, open one on the broker.tj website. It takes only a few minutes.

2. Funding the account: Make sure that you have sufficient funds in your brokerage account to participate in the IPO.

3. IPO Information: Follow the announcements of upcoming IPOs on the broker.tj website or mobile app. There you will find information about the company, subscription dates, and price range.

4. Submitting an application: During the subscription period (usually several days), you submit an application through the trading terminal or the broker.tj personal account. In the application, you specify the number of shares you want to acquire and the maximum price you are willing to pay.

5. Allocation: After the application collection is completed, the broker receives a certain number of shares from the underwriter and allocates them among its clients. If demand exceeds supply, an allocation may be applied - you will receive not all shares you applied for, but only a part. The remaining funds will be returned to your account.

6. Commencement of trading: After the official start of trading on the stock exchange, the shares will appear in your portfolio. From this point, you can sell them or hold on, waiting for further growth.

Why should an investor participate in an IPO?

Participating in an IPO at an early stage can bring significant benefits.

 

What risks should be considered?

Investing is always a balance of return and risk. When participating in an IPO, it is important to remember:

• Volatility: In the first days of trading, the share price can sharply rise or fall.

• Allocation: If the demand for shares is too high, the broker may not fully satisfy your request (for example, you wanted to buy 100 shares, but received 20).

• Lock-up period: Sometimes investors are prohibited from selling shares for a certain period (usually from 30 to 180 days) after the IPO.

 Tips for Beginners

• Diversify: Don't put all your money into one IPO. Spread capital across different companies.

• Study the business: Read prospectuses or brief overviews.

• Consult: Use the "Personal Advisor" service to get a professional opinion on the prospects of a particular offering.